Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey
Abstract: Hurricane Harvey brought more than four feet of rainfall to the Houston area in August 2017, leading to substantial flooding in many areas. Using regulatory data with detailed information on borrowing terms, we compare the borrowing response to Hurricane Harvey in parts of Houston that were more and less affected by flooding. We find that hurricane-affected households borrowed in a price-sensitive and time-limited manner, relying almost exclusively on promotional-rate credit cards and mortgage forbearance for new credit and repaying balances quickly. We find that conditional on flooding, households in FEMA-designated floodplains borrowed less. Within the floodplain, building code changes that required homes to be elevated above the floodplain dramatically reduced households’ storm-related liquidity use. Flooded borrowers in homes subject to this type of physical hardening used forbearance at the same rate as borrowers who did not experience flooding, suggesting that for natural disasters, ex ante physical hardening is a substitute for ex post credit.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2022015pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2022-03-25